Refinancing and repricing deals have caught on like wildfire as companies are seizing issuer-friendly opportunities to capture better pricing on their credits while they still have the chance. Last week, DirecTV and National Waterworks tapped investors for tighter pricing on credits that were completed less than nine months ago. DirecTV's $1.675 billion deal was originally completed last March, while National Waterworks was done last November. DirecTV is seeking to tighten its "B" loan, while National Waterworks seeks to ease some of the concessions that lead banks J.P. Morgan, Goldman Sachs and UBS had to ante up in order to get the deal done late last year (LMW, 11/18).
Investors are falling to the mercy of the tightened terms on the repriced deals as the shortage of paper keeps their hands tied to the credits. "It's a tidal wave [of repricings] and no one knows when it's going to stop," one portfolio manager said. Other refinancings recently completed or in the market include TRW Automotive, Crown Cork & Seal, Concentra Managed Care, Morris Communications and JohnsonDiversey. Investors cannot do anything about it, the manager added, explaining that if a buysider does not approve the amendment or sign the refinanced deal, the companies will find someone who will. "People have too much money to put to work. There is a liquidity crisis and it's just going to drive spreads lower and lower," he speculated. Standard & Poor's reported that the second quarter this year saw a record $21.2 billion of institutional loan repayments. Portfolio managers are just looking at their portfolio, checking which loans have not been refinanced yet and are wondering if they will refinance next week, the portfolio manager added.
One banker noted that some investors are taking bigger pieces of the loan than before in order to up their returns on the tighter spread. "You still want to have a diversified portfolio," a buysider pointed out however, adding that investors still need good risk-adjusted returns and deals with attractive spreads. "A lot of [collateralized loan obligations also] have spread constraints," he said. The portfolio manager further noted that even if a loan gets paid down at a premium, the interest rate on the loan is often cut by at least that much and the loss is over more than one year. National Waterworks' $250 million term loan is being paid out at 102 to incumbent investors and is then being sold at par with a lowered spread to LIBOR plus 23/4%, according to a banker. The portfolio manager said he expects the trend to continue for some time. "[But] markets that are out of balance have natural ways of coming back in the balance, and this market is no different," he noted.